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It’s often said that real estate value is all about “location, location, location.” In other words, if you know where the property is located, you know the most important thing about it. In reality, this is never entirely true, especially in a down market. My suggested replacement is “location, timing and luck.” Of course, location is always important when estimating value and arguably even more so in a down economy. If you can rent or buy a class A location in bad times for less than a class B location in good times, why wouldn’t you? The same folks who are driven away from prime locations at the top of the market flock back when those locations become affordable again. And, as a corollary, the less-than-prime locations suffer even more in a bad economy as tenants and investors flee toward quality.

As we all search for signs that the economy is improving, our attention is drawn to the small number of transactions that indicate that prices might be rising. And where are they? So far it appears that trophy properties in coastal or gateway cities have attracted investor interest, particularly from overseas buyers. Office buildings located in prime locations in Washington, DC (1999 K Street NW), New York City (340 Madison Ave.), and San Francisco (333 Bush) have recently sold for prices that are clearly above the levels of distressed sales, not as high as they might have been at the peak of the market two years ago, but still respectable. So, location still deserves a place among key valuation drivers. But it’s not the only one.

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